Sen Corp., a publicly-traded, mid-cap company, wanted to obtain $30 million in new capital to expand its Iowa plant. Cost of capital was a factor in making the decision. Sen Corp. could either issue new preferred stock or new debentures. Sen Corp.s underwriter estimated that preferred stock should have an annual dividend payout of $6 and an issue price of $103 per share. The debentures should have a coupon interest rate of 9% and an issue price of $101. Sen Corp.s marginal income tax rate was 40%. Which of the following approaches describes Sen Corp.s best strategy?

	Sen Corp. should issue the debentures since the after-tax cost of debt (5.347%) would be less than the cost of equity (6%).
	Sen Corp. should issue the preferred stock because the cost of equity (6%) is less than the cost of debt (9%).
	Sen Corp. should issue the debentures since the after-tax cost of debt (5.347%) would be less than the cost of equity (5.825%).
	Sen Corp. should issue the preferred stock because the cost of equity (5.825%) is less than the cost of debt (9%).